Does Your Realtor® Have a Formula?

Real Estate in the Bay Area is a tough nut if you’re an aspiring Buyer. Most homes are still getting multiple offers and selling for thousands over the asking price. In Central Contra Costa, still considered one of the more affordable areas to buy a home, the June, 2013 average sales price and percentage of homes sold over the asking price in the most affordable CentralCounty towns were:

Concord:

Average Sales Price – $457,411

Average Amount Over Asking – $30,798

Percentage of homes that sold over asking – 60.4%

Pleasant Hill:

Average Sales Price – $611,827

Average Amount Over Asking – $56,093

Percentage of homes that sold over asking – 63.4%

Martinez:

Average Sales Price – $444,018

Average Amount Over Asking – $23,900

Percentage of homes that sold over asking – 52.7%

Even in the higher priced communities of Danville and Lamorinda (Ave SP $1.096MM and $1.281MM, respectfully), more than half of the sales were over the asking price.

With all of these odds stacked against today’s buyers, it’s INCREDIBLY IMPORTANT for you to hire a Realtor® who uses a Formula to help you write a competitive and (hopefully) winning bid.

Here’s the Formula that I use:

First, figure out how many offers are going to be submitted on the property in question. If your Realtor® can’t figure out how to do this or is too lazy, find a new one. If there are more than 10 offers, divide that number by 2.

Based upon the home’s asking price, use one of the following:

a. Asking Price – $200K to $400K – use $2,500 to $5,000 times the number of offers and add that to the asking price.

Example: 5 offers will be presented on a home priced at $400,000. 5 offers times $5,000 = $25,000 + $400,000 or a bid of $425,000.

b. Asking Price – $500K to $800K – use $7,500 to $10,000 times the number of offers and add that to the asking price.

c. Asking Price – $900K to $2MM – use $12,500 to $15,000 times the number of offers and add that to the asking price.

Now that I discussed the simple math of the formula, there are a few other considerations. First and foremost, your Realtor® should have a strategy to attempt to find you a home that does not require competitive bidding. Next you have to be concerned about the property appraisal should you win the bid. Many listing agents are requiring buyers to cover $10,000, $20,000 or more with additional funds, should the property appraisal fall short of the contract price. Some listing agents expect the winning bid to “WAIVE the Appraisal Contingency. I NEVER recommend my buyers waive their appraisal contingency. However, I do perform a comparative market analysis of the subject property to establish a range of value for that home. Then I can establish the degree of (financial) pain, the buyers can tolerate in the form of potential additional funds added to their down payment for a winning bid.

Now all of you active buyers can share this formula with your Realtor®. Alternatively, you can select a Realtor® who has been using a formula through times like these and keeps track of the market for the benefit of his buyers.